Comment by TeMPOraL

Context window is arbitrary and can be adjusted on demand. When a new random event needs to be generated, and then fleshed out, the context can contain e.g. list of facts about the story so far, the overall story arc, summary of main characters or plot threads. This can be used by LLM to decide e.g. which faction will attack, and who will be on it, and what their goal will be, etc. After the event concludes, it just becomes another line in story event history. Meanwhile, that can be fed to a differently prompted LLM to evolve the plot arc, update motivations of background characters, etc.

I have a feeling people imagine LLMs as end-to-end DMs that should somehow remember everything and do everything in one inference round. That's not what they are. They're building blocks. They're to be chained and mixed with classical flow control, algorithms, and data storage (as well as the whole interactive game mechanics, in videogame context).